Ghana Begins its Dance with Creditors

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Bright Simons

Barring last-minute changes to plans, Ghana will formally announce its intent to default on its debt early next week.

This was revealed in high-level meetings between the country’s financial authorities and top finance and economic sector actors on Friday, the 2nd of December 2022, as the country’s senior men’s football team battled the Uruguayans for World Cup glory.

Regular readers of will recall our earlier mention of the authorities’ intent to have a “shallow restructuring” of the country’s debt and our assessment of any such approach being unlikely to make a serious dent in the macrofiscal situation. After hiring four international consulting firms, and crunching the numbers more soberly, the government seems to have come around to the reality that a deeper restructuring is required.

Quick Highlights:

– Consistent with the government’s posture, “stakeholder consultations” will remain perfunctory. No serious attempt has been made to mobilise major factions of the society behind these plans. Not even the ruling party is fully briefed about the entire strategy set of the authorities, much less the opposition.

– We reiterate our earlier position that, next to poor stakeholder mobilisation, the biggest risk to the proposals is litigation, including the possibility of class actions inspired by political opposition actors and unions. Some of the local debt instruments are subject to English law, heightening the prospect of some holdouts facilitated by the use of the London courts to frustrate the government’s timeline. Other instruments are overcollateralised by tax revenue and may become the subject of local judicial disputes.

– We have suggested in the past that a Greece-style law may have been helpful in moderating litigation risks but the government’s preferred timeline for action and disinterest in meaningfully engaging the Opposition has apparently ruled this out for now.

It is important to bear in mind that these are merely the government’s initial proposals. Haste has been the foremost consideration in coming up with them. The rubber however meets the road in the rough and tumble of the democratic process. Some of the risk factors indicated above can only be resolved by strategic backpedaling with perfect timing.

The true quality of the Ghanaian government would be seen in how it sequences and orchestrates its concessions and hold its red lines as it navigates the process post-announcement. Whilst the underlying technical appraisals guiding its actions are reasonably thorough, I am afraid I do not have too much confidence in the government’s mastery of the political economy of crisis management.

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